Re: ECON: Intellectual Property Again

Michael Lorrey (
Fri, 22 May 1998 18:47:15 -0400

Daniel Fabulich wrote:

> On Thu, 21 May 1998, Michael Lorrey wrote:
> > Information can certainly be treated as any other product. Since information cannot exist
> > in nothingness, it needs to be represented in an arrangement of printed letters, or
> > electrons, or sound waves, then it certainly has material existence and is therefore a
> > product.
> I disagree. Information is completely immaterial. Conisder: I am a
> novelist who has written a book. I have taken energy, ink and paper and
> turned them into a draft. If I submit this draft to my publisher, he
> could publish it. Obviously, I have added value to the ink, paper and
> energy by writing my novel. (Let's imagine for a moment that my novel is
> good. :) )

Yes, the act of writing a novel is a service. The resultant manuscript is a product. Do you see
the difference? One is kinetic and the other is static.

> However, if I gave YOU the same ink, paper and energy and told you to
> write my novel, you couldn't do it. You probably couldn't even do it if I
> gave you TWICE as much energy. Why? Because you would not know what my
> novel says or is about: you would not have the information.

Because I cannot produce exactly the same service as you. However, if I were given an outline
of the novel, descriptions of the characters, I could certainly create a reasonable facsimile
of the novel that you would have produced. My writing the novel is a service, the resultant
manuscript is a product.... get it yet?

> The fact that given ample matter and ample energy you could not generate
> my information means that it is a very different process from widget
> making, which economics presumes CAN be done by anyone with enough labor
> and capital.

No, if I do not give another manufacturer exact plans for the widget I produce, then by
definition his widget is going to be slightly different. Even if I tell manufacturer A and
Manufacturer B to make a widget that does Job A in Manner B, they will still be slightly
different, but will do the same job. Cases in point:

1) Jeep Cherokee and Ford Explorer
2) F-16 Fighting Falcon and Mig-29 Fulcrum
3) La Cage Aux Folles (sp?) and The Birdcage

> > A service is work, a kinetic, not a static state. Information is static like any other
> > product. Transmitting information is doing work as it is a kinetic action, expending
> > energy to do work, so the act of transmission is a service, and the act of agreeing to
> > lend someone the use of my information for specific purposes on the condition that you do
> > not reproduce my information to sell to others is also a service. The information which
> > is lent is still a product.
> Information is also unlike a product in that, unless I forget about it, I
> can never return it to you, nor have you lost your use of it while I
> borrow it. Whether or not you agree that this is a service rather than a
> product, I think you must admit that this an attribute which is unique
> to information; I argue that it is because of this unique property that we
> should not enforce property rights over it.

This is why it is most important to enforce property rights on it. This is why the word is COPY
- RIGHT, or right to copy, get it?

It is important because information is very easy to reproduce, while much more substantive
products are not so easy to reproduce. Especially with software, if there is no way an
individual or company can hope to get paid for its software, if the first person to buy a copy
goes out and gives away copies to everyone, then there will be no incentive to produce software
and the industry will die, or at least become severely retarded. The only way to make money in
software will be in technical support charges, so essentially income in software will be
equated with a tax on stupidity, which might not be a bad way to go, but I doubt that many
investors will be that big on such a high risk concept, especially as such a market is self
correcting....unless you purposely release bad software....

> > Moreover, service, or work, is the ultimate property right, unless you beleive in
> > slavery. Only a slave does not have sole right to his or her own labor. An individual
> > cannot have his or her work stolen from them. Intellectual property rights protect the
> > product of that work, whether it is a statue, a song, a building, a machine, or anything
> > else which is the result of man applying his or her intelligence to add value to
> > something.
> Go back and reread, and then consider my coercion point a little more
> carefully. Suppose there are no property rights, and I am deciding
> whether or not I am going to invent. I know that if I invent, many people
> besides me will benefit. Suppose that I decide to do so anyway, FULLY
> AWARE of the fact that others will benefit. Since this action is
> voluntary, and not coerced, then the benefit which others would take from
> my action as an externality is not stolen, but willingly given; if I was
> unwilling to give it, then I would not have done so, and refused to
> invent.

So you admit that it is a severe disincentive against invention, if an inventor is guarranteed
to have his invention stolen the minute it goes public. How many people will be able to devote
their lives unselfishly to producing software when they have no hope of being compensated for
the undertaking? Far Far fewer than those at present.

> Now, this externality is still bad, because it means that I do not have
> enough of an incentive to invent as I otherwise should. I ACKOWLEDGED
> that in my last post: this was the "deadweight loss as inventors produce
> fewer inventions than they otherwise would." I argued that this
> deadweight loss would be OUTWEIGHED by the economic efficiency gained from
> not enforcing those rights. Let's examine this more carefully.

And I replied that I think that you are out of your hat to think so...

> > I understand your logic, and beleive that you are wrong in your economic evaluation.
> > Without a protect of an inventors intellectual property rights, there will not be the
> > same level of invention as there is when there are such protections. The human race is
> > desperately dependent on advancing technology from invention that is stimulated by
> > intellectual property rights incentives, only because we are stuck on one planet with an
> > ever increasing population. Every increase demands greater efficiency of resource
> > utilization, something which can only happen with high levels of invention. You have
> > ignored the incentive effect that such protections have on technological development.
> I did NOT ignore it; I specifically referred to it, and argued that it
> would be outweighed by the deadweight loss due to monopoly plus the cost
> of enforcement.
> > Exactly, which is why your concept cannot work and maintain a decent level of
> > technological advancement.
> Wrong. The fact that transaction costs are not zero means that the system
> of allocation of resources is inefficient; this is represented by
> deadweight loss. However, enforcing intellectual property is ALSO
> inefficent, as it grants monopolies over copes of ideas, resulting in more
> deadweight losses, as well as incurring the cost of enforcement.

You have yet to quantify any of your claims, probably because you cannot quantify those
claims.... come back when you get real data...

> The question is not which system is inefficient and which is not; the
> question is which is LEAST inefficient.
> > Intellectual property enforcement costs are extremely low, because it is very easy for
> > the public to know when a product is a knock off or not.
> If each buying person gains equal utility from a copy as they do from the
> original (an extremely likely presumption when we're talking about pure
> information) then it becomes profitable to buy your goods from the black
> market rather than from reputable dealers. And if you think the black
> market for information is easy to break, the software industry has NEWS
> for you.

I work in the software industry, and it is easy to create fingerprints in data and in software.
The problem in the software industry is a refusal on the part of nations like china to enforce
the laws they already have, because the pirates are top officials in the Communist Party.

> Even today, software copyrights simply aren't enforced on a wide scale; to
> do so would require monitoring everyone's personal computers and
> wire-tapping the whole Internet; it's completely impossible to
> discover/prevent if the pirates are using encryption for anonymity and
> transmission. You'd have to outlaw cryptography in order to even come
> close to eliminating software piracy.

its more a matter of prosecuting those in the breach. An easy way for, say, Microsoft to
enforce its own copyright is to require that all resellers of Windows perform license checks on
software on customers computers when the coputers are sent in for maintenance. I don't see any
reason why Apple, Microsoft, and IBM don't get together and adopt that as an OS industry
standard practice.

> Software piracy is probably the highest costing market upon which to
> enforce intellectual property; music probably comes in a close second
> (it's a black market which is unevenly enforced so you can't get official
> numbers for this sort of thing). However, even if the cost due to
> enforcement is lower for some goods than for others (your mailing list,
> perhaps), you STILL have the problem of deadweight loss due to
> monopolization of copies. Basically, I'm covered by BOTH effects: the
> cost of enforcement AND monopolization.

One interesting thing I've found is that the pirate market overseas is turned a blind eye by
most software and music producers because its a neat way to get reduced prices from their CD
manufacturers (and consequently lowered tariff costs) by cutting a deal with the chinese CD
producer that allows him to produce X number of CDs on the side for his own resale on the
'pirate' market. THis way, the music or software company can continue to make huge profits in
markets where the CDs are sold at high retail rates, while minimizing their production and
shipping costs. Its really just a tax dodge....

> > Granted they have gone up in
> > recent years, but only because we have opened our economy wide to the Chinese, who have
> > no respect for intellectual property, nor any other type of property or individuality, it
> > seems. Rather than looking at pirating as a positive externality, look at the cost of
> > enforcement as an externality created by pirates that everyone has to pay. If trade with
> > pirate economies were cut off, our cost of intellectual property enforcement would go
> > down again.
> Your logic is dizzying: the more the positive externality happens, (which
> this is, by definition,) the more we have to pay to stop it from
> happening! Of course, if we weren't trying to pay for IP's enforcement,
> then we would circumvent that part of the problem entirely.
> > You have to date, only guessed. Since the current situation is one where intellectual
> > property is respected and enforced, I think that the onus is on YOU to prove your point
> > with real numbers. Until you do, all we can think of your ideas is that they are quaint
> > fantasy with no basis in fact.
> Guessing? Only so as to provide extra precision. If you'd like I can
> stick to being very general, based on what we already know. We already
> know that the cost to an individual of producing another copy of a piece
> of information is low, and that it does not increase significantly when
> lots of people are producing lots and lots of copies. Therefore, we know
> that the production of copies is nearly completely elastic. (HOW near is
> what I was trying to guess.) Since the marginal revenue curve for
> monopolies is half of the demand curve, we know that it will strike the
> P=0 line at 0.5Q, where Q is the quantity demanded when P=0. If the
> marginal cost curve were completely elastic, then the market for copies
> would shrink by 50% thanks to monopolization. Again, since it is only
> nearly completely elastic, deadweight loss is is only nearly 50%; I
> guessed 40%, which gives me a large margin for error.
> > I think that history shows that lack of intellectual property enforcement causes
> > invention to be severely undervalued. Looking at how national borders create natural
> > limitations on intellectual property rights, and how making such rights enforceable
> > across borders via tools such as GATT it seems rather clear that prior to enforced
> > intellectual property rights, invention was severly undervalued, and the rates of
> > productivity growth suffered as a result. Today's startling increases in productivity
> > just a few years after GATT are proof that expanding the incentive to invent expands the
> > rate of invention and therefore the rate of productive growth
> Oh, there's no question that the rate is affected. I agree: when the
> incentive goes up, invention goes up, and when incentive goes down,
> invention goes down. That's not what I'm on about. What I'm saying is
> this: we know both that the market for copies is slashed by at least 40%
> when IP is enforced, and that the cost of enforcement is non-trivial. Is
> monopolization's deadweight loss plus the cost of enforcement GREATER than
> or LESS than the deadweight loss due to decreased invention? I say
> greater; you know why.
> > Considering that you have refused to respond to my refutation of your assertion that an
> > invention is a monopoly, your argument does not stand. Any engineer will tell you that
> > there are always many many ways to solve a problem. Only problems are unique. Invention
> > is not a monopoly market.
> We must assume that the engineer's ability to route aroun IP is not a
> significant effect, otherwise IP has NO economic effect at all: whenever
> you try to patent your idea, I invent another one just like it and you
> gain nothing. If this is true, then the only difference in costs between
> enforcing IP and not enforcing IP is the cost of enforcement; and that's
> in MY favor, not yours.
> However, if we assume that IP cannot be so easily routed around, as we
> must if we think IP will have any effect, then we must observe that IP is,
> by its very definition, granting the inventor monopoly rights over copies
> of their idea. This is how we define IP; there isn't any argument to be
> made here. And, since in this market copies are cheap and supply is
> elastic, the market for copies suffers at least 40% losses thanks to
> monopolization.
> > I don't need to. The present economy is my own proof. YOU need to come up with proof that
> > economic growth would be higher without such protections. That the US has one of the
> > highest levels of intellectual property protections, along with among the top 3 or 4 per
> > capital incomes/standards of living, and among the highest economic and productivity
> > growth rates for a nation at its state of development (a third world with a 50% growth
> > rate doesn't mean anything if they are starting from nothing.)
> I'm making a MICROecnomic argument, not a macroeconomic argument. As you
> well know, there are hundreds of thousands of effects which have positive
> and negative effects on the economy, many of which are present in the US
> and not in other areas (or vice versa). The only macroecnomic argument
> which I can present is that microeconomic efficiency, as a trend, leads
> towards greater GDP. However, the behavior of one market can never be
> used to predict the behavior of the economy as a whole. Microeconomic
> markets tend to clear and/or equilibrate; they have no business cycle.
> The macroeconomy is practically the antithesis of this model.
> If I am right, then IP is just one of the galaxy of factors which hold
> America back from greater growth, none of which alone could possibly
> explain our growth rate.
> > No, theft is when someone benefits from someone else without that persons permission or
> > acquiescence.
> If there are no IP rights, and the inventor invents despite knowing this,
> then the inventor has, by necessity, acquiesced.
> > To fail to protect the product of an individuals mind is to declare that
> > all minds are slaves to society, that the individual has no rights at all. That is a
> > collevtivist, subjectivist, post modern scam if ever I heard one.
> Well, how does this sound: I declare that individuals have a right to
> their physical property and energy, and that anyone has the right to
> organize their property in any way they want, even if they organize their
> property just like someone else's property.
> Doesn't sound very collectivist to ME.

How does someone else know exactly how someone else organize their property?? If they haven't
paid for the product (i.e. the information about the other person) then they cannot organize
their property the exact same way, can they?

> > Fails to maximize the utility of what or who?? Society? Sorry, society has no rights, and
> > is not entitled to its own utility. Lack of intellectual property is enslavement of the
> > mind to the collective. Bye Bye BORG.
> What striking rhetoric. No, not the utility of society, but of all of the
> individuals in society, in sum.

Duh, in sum is society.

> Just like how America's wealth is not the
> wealth owned by America, but the wealth owned by every individual in
> America (and that's the way it should be!), I refer to net utility as the
> utility possessed by every person in the nation.

Destroying the incentive to invent destroys the utility of every thinking mind. Destroying the
value of the thinking mind makes a human nothing but another animal that can be penned,
harnessed, and slaughtered at will....

> See? Not collectivist.

Totally collectivist.

> > Hardly. As history has shown intellectual property works (American history). Lack thereof
> > does not work (most everywhere else's history)
> Whether IP works or doesn't work is the subject of debate; it cannot be
> demonstrated by looking at GDP, as many nations which DO have IP are
> nonetheless doing poorly macroeconomically; the behavior of one market
> does not dictate the success of the whole.
> > Are you utilitarian or libertarian. There is a distinct difference.
> My ethical principles are utilitarian. Because of that, I certify that I
> do not believe in or advocate the initiation of force as a means of
> achieving political or social goals. You decide whether that makes me a
> libertarian or not.
> > You have yet to objectively and scientifically demonstrate that it is a bad law. The only
> > dead weight here are those who steal the product of another's mind.
> Monopolization objectively leads to deadweight loss. I have argued that
> the law is bad for this reason. Now it's time for you to show how the
> deadweight loss under my system is bigger than the deadweight loss under
> your system as well plus the cost of enforcement.

I don't need to. I have the present system as my proof. Since your system is the new one, you
need to do the quantification comparing the two. Rough percentages and uninformed guesstimates
do not cut it.

   Michael Lorrey
------------------------------------------------------------ Inventor of the Lorrey Drive
MikeySoft: Graphic Design/Animation/Publishing/Engineering
How many fnords did you see before breakfast today?